Reed, Conner & Birdwell
Commentary
Whole Foods vs. Twinkies: 2011 Outlook
Our ?Outlook? usually falls back on a ?normalized? sense of equity returns in the mid- to high-single digits for the long run, from which we add to or subtract from factoring in current valuations in the portfolio and the market as a whole. We think between reasonable economic activity, operational competence and generally solid capital allocation strategies, we can expect the value of our holdings to appreciate at least in line with a normalized ?forecast,? and then we get our boost from purchasing this value and/or growth at 20% to 50% of our estimate of intrinsic value.
Commentary
The Rule of 72
The 'rule of 72' allows the lay investor to determine how long it will take for him to double the value of his investment. It is calculated by dividing the number 72 by the annual yield of an investment. For example, if one divides 72 by the current 10-year Treasury bond rate of 2.7 percent, the formula generates an output of 26.6 years to double one's money. Under almost any definition of an intelligent investment plan, that seems like a very long time. If you cannot earn a rate of return above the 3 percent after-tax cost of debt for 10 years, then you should quit.
Commentary
Cage Match
Contrary to public opinion, there is enormous opportunity for an investor today to focus on the business and valuation details of a particular investment while everyone else is running around trying to tie the world together into some neatly gift-wrapped strategy that can be easily quantified and traded by a computer algorithm. Yes, it can be frustrating when everything seems to go down on a day when the market goes down, but no one said this is easy. And when it gets that easy, you should be selling into it.
Commentary
Taking the Man at His Word
Berkshire Hathaway is more economically cyclical that it has been in the past, and would have a much bigger tailwind in an improving economy. The stock also tends to be seasonally strong into the annual meeting. Investors should not squeeze every last dollar of potential profit out of an investment, however, without considering risk. We will therefore take the company at its word: 'The past growth rate in Berkshire?s book value per share is not an indication of future results and our book value per share will likely NOT increase in the future at a rate even close to its past rate.'
Commentary
Bonds for the Long Run
RCB is a classic value-based investor. They note that the 2009 rally has left them with fewer buying alternatives. However, they state, "equities as an asset class will outperform investment grade bonds of almost any stripe over the intermediate and longer term using January 2010 as our starting point?? They believe equities are valued ?to do okay,? since 2009 and 2010 earnings do not represent a ?normalized? environment. ?Moving forward, the real fun in 2010 will be how investors react to the possibility of higher interest rates driven by a stronger than expected economy.?